Abstract:We exploit a well-known natural experiment in order to investigate the way that living arrangements respond to an arguably exogenous shift in the distribution of power
in family economic decision-making. In the early 1990s, the South African Old Age Pension was expanded to cover most black South Africans above a gender-specific age cut-off. This expansion resulted in a substantial increase in the income of older South Africans, and likely with it an increase in these individuals’ say in the economic decisions of their families. Beneficiaries of the program are more likely to coreside with other adults who have lower levels of human capital as measured by height and education. Since height and education are fixed for adults, this cannot be an effect of the pension income but rather reflects the selectivity of changes in living arrangements resulting from the pension. These findings shed light on the
nature of the endogeneity of living arrangements in an economic model of the family. We also provide a real-world illustration of the importance of accounting properly for this endogeneity in welfare evaluations of public programs. The evidence highlights the potential value of moving beyond theory and data which are bound by the confines of a spatially determined definition of the household.